Judge Rejects Schering-Plough Tax Refund Request

WASHINGTON (AP) — A federal court in Newark, N.J. has rejected Schering-Plough Corp.'s request for a $473 million tax refund related to the drugmaker's efforts to avoid paying taxes on $690 million in overseas profits it brought back to the U.S. from offshore subsidiaries. Income generated overseas that is reinvested into a company's international operations is generally taxed at a lower rate than profit brought back to the U.S. In 1991 and 1992, the drugmaker — in conjunction with financial adviser Merrill Lynch — set up interest rate swap transactions to return some international profits untaxed. The Justice Department said Monday that in rejecting the refund request, the court found that the transactions "lacked economic substance, did not have a genuine business purpose, and were designed to avoid tax." "This victory for the United States should serve as another warning to taxpayers of all sizes and sophistication who consider attempting to circumvent the federal tax laws and their duty to pay their fair share," said D. Patrick Mullarkey, the Acting Deputy Assistant Attorney General of the Justice Department's tax division, in a statement. "We disagree with the court's decision and are considering our options, including appealing the decision," Schering-Plough spokesman Fred Malley said. The drugmaker is on its way to becoming part of larger rival Merck & Co., as shareholders of both companies overwhelmingly backed a $41.1 billion acquisition of the Kenilworth, N.J.-based company earlier this month.